What Happened to U.S. Pharma?

Earnings season is in full swing, and major domestic pharmaceutical companies arrived with decidedly mixed results. Let's see how Big Pharma fared over the spring months on a company-specific basis.

Johnson & Johnson (NYSE: JNJ) was one of the first to report, and after showing us some seemingly sunny numbers on the surface, we ultimately found that the company hasn't recovered from a nearly endless string of product recalls. All growth came outside the United States and was largely attributed to a weaker dollar. However, the negative impact in consumer health is declining, and the pharmaceutical segment showed well. Remicade and Concerta stood out, and its pipeline of Xaretlo, Incivo, and Zytiga are underappreciated. J&J isn't back yet, but it appears well on its way.

Bristol-Myers Squibb (NYSE: BMY) saw its most important drug grow. Plavix sales were up 17%, but as Brian Orelli puts it, "the higher sales are just raising the cliff from which Bristol-Myers will fall." Plavix will face generic competition for the first time in the spring of next year, making this quarter's growth one of the final triumphs of Bristol-Myers' great drug franchise. However, Bristol has the best pipeline story of any Big Pharma player, so look for Yervoy and Eliquis (pending FDA approval) to pick up the slack. I recently highlighted the company as an opportunistic purchase in this scary market.

Eli Lilly (NYSE: LLY) reported a real snoozer of a quarter, with revenue declining and earnings coming in a cent under expectations at $1.18 a share. Sales of its top two drugs, Zyprexa and Cymbalta, were up 12% and 16%, respectively; unfortunately, patent protection has just about run out for both franchises. Lilly did raise its 2011 guidance, yet even combining that good news with a tantalizing 5.5% dividend yield, I can't see Lilly's share price overcoming a pipeline with serious issues. Lilly just doesn't have a good story to sell right now.

Merck (NYSE: MRK) continues to digest its acquisition of Schering-Plough, announcing that it will eliminate an additional 13,000 jobs -- mostly overlap on the administrative side -- by 2015. That will bring the aggregate casualty count post-merger to roughly 20,000 and total annual savings over $4 billion from the cost-cutting program. Unlike some rivals, Merck is keeping its R&D steady in the hope that it will deliver new sources of revenue to soften its landing from patent expirations. However, its recent hepatitis C drug, Victrelis, is not faring well against Vertex Pharmaceuticals' (Nasdaq: VRTX) rival drug Incivek. It's still early in the race (total sales of both drugs made up a minuscule percentage of Merck's $12.2 billion in quarterly revenue), but Merck can't be happy with a sub-25% market share.

And then there's Pfizer (NYSE: PFE) with its earnings of $0.60 a share, beating estimates but falling to the year-ago quarter as its pharmaceutical segment declined 3%. That's important, because like the 1969 New York Mets, calls to "break up" Pfizer have become wildly popular. (Unlike those Mets, history won't be putting the word "miracle" in front of Pfizer's recent performance.) The company finally relented and will be spinning off parts of its empire, most notably animal health and nutrition. It will keep its consumer-health segment and focus on replenishing its pipeline. Given the state of Pfizer's core business and the prior success that spinoffs such as Mead Johnson (NYSE: MJN) have had over their Big Pharma parents, I'm decidedly more excited to own the departing businesses.

There you have it. Stay tuned for future reports on the international pharmaceutical companies as well as the more focused biotechs. In the meantime, don't forget to add all five companies I've discussed today to your Watchlist and never worry about missing out on an important development again.